L'Oréal: Still Too Expensive After 8.6% Correction

(Preview) Company Update (OR FP) (Neutral)

Summary

• L'Oréal shares have fallen back 8.6% from their 52-week high in recent days, but we believe they're still too expensive.

• Strong structural growth has continued, with L'Oréal's Q3 sales update showing its two-year sales growth has accelerated to 14.9%.

• The strong Q3 came in spite of COVID disruptions in some regions, and Consumer Products (especially makeup) have not yet fully recovered.

• L'Oréal repurchased €8.9bn of its shares from Nestlé in December, thereby boosting its EPS by approx. 4%.

• With shares at €396.35, we expect a total return of 7% (2.4% annualized) by 2024 year-end, not attractive enough. Avoid.

Introduction

We review our Neutral rating on L'Oréal six months since our last review (in August 2021). In recent days, L'Oréal shares trading in EUR on the Paris exchange have fallen 8.6% from their 52-week high.

We downgraded our rating on L'Oréal from Buy to Neutral in May 2021 after the stock price reached a new all-time high. Since then L'Oréal shares have risen a further 4%…